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Kamada Ltd (NASDAQ:KMDA)
Q4 2019 Earnings Call
Feb 12, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, welcome to Kamada's Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Bob Yedid. Thank you, you may begin.

Bob Yedid -- Investor Relations, LifeSci Advisors, LLC

Thank you. Good morning, this is Bob Yedid with LifeSci Advisors. Thank you all for participating in today's call. Joining me today from Kamada are Amir London, Chief Executive Officer and Chaime Orlev, Chief Financial Officer.

Earlier this morning, Kamada announced financial results for the fourth quarter and full year ended December 31, 2019. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Kamada. I encourage you to review the company's filings with the Securities and Exchange Commission, SEC, including, without limitation, the company's Forms 20-F and 6 K which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, February 12, 2020. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, it's my pleasure now to turn the call over to Amir London, Chief Executive Officer. Amir?

Amir London -- Chief Executive Officer

Thank you, Bob. My thanks also for investors and analysts for your interest in Kamada and for participating in today's call. We are excited by the overall strong performance of our business throughout 2019. We delivered robust financial and operating results during the course of the full year. Of course when reviewing the fourth quarter year-over-year in comparison specifically, if you probably remember that our fourth quarter 2019 financial results were significantly increased by our successful efforts to expedite the release and shipment of GLASSIA lot for the U.S. which was delayed in the third quarter of 2019 due to the then labor strike. With that said, I will now provide a brief overview of our results for the fourth quarter and full year 2019.

In the fourth quarter, total revenues were $32.1 million and for the full year, total revenues were $127.2 million compared with $114.5 million for the fulll year 2018 representing an increase of 11%. Importantly, our full year 2019 revenues were in line with our recent guidance of between $126.5 million and $127.5 million. From a profitability standpoint, our overall gross profit for full year 2019 was $49.7 million and gross margin were at 39%, an increase from $41.5 million of total gross profit and 36% in 2018.

Based on our strong performance in 2019, and our positive outlook for 2020 we are reiterating our full year 2020 total guidance of $132 million to $137 million. As a reminder, the year-over-year revenue growth in 2020 as compared to 2019 is expected to be driven by the increased sales of the company's Proprietary IgG product portfolio in the international market, expected growth in the Distribution segment in Israel, and increased sales of KEDRAB, our anti-rabies IgG product in the U.S.

We continue to grow our cash position which increased to $73.9 million of cash, cash equivalents and short-term investments at December 31, 2019, a solid increase as compared to the $50.5 million at the end of 2018. Our cash position, sequentially private investments through the $25 million private placement in closing FIMI opportunity fund, a leading private equity investor. This unique investment is a vote of confidence demonstrated in our business they've seen. We believe that FIMI, with its proven ability and significant financial resources will support the continued execution of our business development strategy, which is focused on identifying new product opportunities for our manufacturing plant and seeking complementary product via licensing and acquisition.

Moving on to discuss our commercial operation. As previously communicated, we expect Takeda to complete the tech transfer process and to transition to GLASSIA manufacturing facility during 2021. Based on Takeda's inventory planning for the last year and as reflected in the recent extension and our strategic supply agreement with Takeda for this product, we do not anticipate increased sales of GLASSIA to Takeda in 2020 that compares to 2019, although the number of patients given the GLASSIA in the U.S. is expected to continue to grow.

We anticipate revenues of approximately $65 million from sale of GLASSIA to Takeda in 2020 and in the range of $25 million to $50 million in 2021 based on Takeda's supply inventory. In regards to KEDRAB, [Indecipherable] partner Kedrion, expected results in an FDA-required post marketing trial in the U.S. and is confirming the safety of KEDRAB in children aged zero to 17 years in the second half of 2020. Interestingly, U.S. sales of KEDRAB in market share, which was approximately 10% in the launch year of 2018, grew in 2019 and expected to continue growing in 2020.

Looking further ahead, we executed two important business development transactions in the fourth quarter of 2019, which will contribute for future growth. First, we entered into an agreement with Alvotech, a global biopharmaceutical company to commercialize Alvotech's portfolio of six biosimilar product candidate in Israel upon receipt of regulatory approval from the Israeli Ministry of Health. Alvotech's pipeline includes biosimilar product candidates aimed at treating autoimmunity, oncology and inflammatory conditions. Subject to approval by the Israeli MOH, Kamada expects to launch the first of these products PF708 in Israel during 2022. PF708 is a biosimilar candidate, an FDA-approved product marketed by Eli Lily under the brand name Forteo for the treatment of osteoporosis in patients with a high risk of fracture. PF708 recently received FDA approval and is known by its brand name Bonsity. Following receipt of FDA marketing approval by Alvotech, the remaining five products included in the agreement are, subject to approval by the Israeli MOH, expected to be launched in Israel during the years 2023 to 2025.

Importantly, The current Israeli market for the approved reference products to which Alvotech's six biosimilar products are targeted is estimated to be in the range of $125 million to $150 million annually. And we anticipate the potential collective peak sales, achievable within several years of launch, generated by the distribution of all six biosimilar products to be in the range of $20 million to $30 million annually.

Moreover, we also entered into a binding term sheet in the fourth quarter for a 12-year contract manufacturing agreement with an undisclosed partner to manufacture an FDA approved and commercialized specialty hyper-immune globulin product. Following the execution of the required technology transfer from the current manufacturer, and pending obtaining all required FDA approvals, Kamada is expected to commence commercial manufacturing of the product in early 2023.. We expect this agreement to be finalized during 2020. The strategy of this binding term sheet is in line with our recently communicated business development strategy to proactively explore opportunities to leverage our strategic manufacturing capacity to initiate the production of new plasma-derived products at our FDA-approved manufacturing plant following the completion of the transition of GLASSIA manufacturing to Takeda.

We expect with these activities, including the continued growth of KEDRAB in the U.S. market, the growth of our immunoglobulin product and GLASSIA in existing and new markets in Asia, Latin America and other international markets will enable us to utilize significant portion of our plant's available capacity.

Moving on to the status of the clinical pipeline. I will begin with the development program named InnovAATe for our Proprietary inhaled AAT for the treatment of Alpha-1-Antitrypsin deficiency, AAT. We are happy to announce in the fourth quarter, that the first patient in the Phase 3 trial in Europe has been randomized. The study is being led by Jan Stolk, M.D., Department of Pulmonology, Member of European Reference Network, LUNG at the Leiden University Medical Center in the Netherlands.

InnovAATe is a randomized, double-blind, placebo-controlled pivotal Phase 3 trial designed to assess the efficacy and safety of inhaled AAT in patients with moderate lung disease. Up to 250 patients will be randomized one to one to receive either inhaled AAT with a dose of 80 milligram once daily, all placebo over three years of treatment. The primary endpoint of the InnovAATe trial is lung function measured by FEV1. Secondary endpoints include lung density changes measured by CT scan as well as other parameters of disease [Indecipherable] such as additional pulmonary functions, [Indecipherable] and six-minute walk test. Latest figures in the FDA regarding anti-drug antibody, ABA, to inhaled AAT, we intend to concurrently conduct a sub study in North America in which approximately 30 patients will be evaluated for the effect of ABA on AAT levels in plasma in inhaled AAT, and in IV-AAT treatment.

We believe that inhaled AAT represent a substantial potential market opportunity for Kamada. As a reminder, [Indecipherable] this product will enter the market currently valued at approximately $1 billion and growing 6% to 8% annually. We continue to consider all strategic options for this program in order to maximize its value including potentially seeking a commercialization partner in Europe and all of the U.S.

Moving on, let me now provide you a short update on some of our ongoing IV-AAT pipeline programs. First, the result of the specific course of study for IV-AAT for the pre-emptive treatment of acute Graft versus Host Disease conducted in collaboration with Mount Sinai acute GvHD International Consortium, supplying data from this study are expected during 2020. Second, we intend to announce open results in the Phase 3 trial of IV-AAT for the prevention of lung transplant rejection also during 2020. As a reminder, Takeda has distribution rights and exclusive license to Kamada's plasma-derived IV-AAT product for all IV indications in the U.S., Canada, Australia and New Zealand. And Kamada maintains rights to the other territories in all other AAT routes of administration, including inhaled AAT. With that, I will now ask Chaime to review our financial results, Chaime?

Chaime Orlev -- Chief Financial Officer

Thank you, Amir, and good day everyone. We are very pleased with our strong financial performance during the fourth quarter and the year ended December 31, 2019. For the full year, we grew the top-line significantly in multiple profitability metrics, including adjusted EBITDA and operating income showed meaningful improvements.

With that, let me discuss our specific financial results. I will begin with the three months ended December 31, 2019. Total revenue was $32.1 million in the fourth quarter of 2019, a decrease from the $48.2 million recorded in the fourth quarter of 2018. As Amir noted, when comparing our fourth quarter financial results with the prior year period, it is important to consider the significant benefit our fourth quarter 2018 results received from our efforts to expedite the release and shipments of GLASSIA lot to the U.S. that was delayed from the third quarter of 2018 due to the labor strike.

Net income was $5.4 million or a profit of $0.13 per diluted share in the fourth quarter of 2019, compared to net income of $17.7 million or $0.44 per diluted share in the fourth quarter of 2018. During the fourth quarter of 2019, we generated positive cash from operations of $8.6 million. With that I will now review the results of the year ended December 31, 2019, as we believe are more meaningful for investors and analysts when analyzing our performance.

Total revenues were $127.2 million, up 11% from $114.5 million in the year ended December 31, 2018, primarily driven by increased sales of both of our core products, GLASSIA and KEDRAB. Revenues from the Proprietary Products segment were $97.7 million, up 8% from the same period of 2018. Revenues from the Distribution segment were $29.5 million, up 25% from the same period in 2018. I'm pleased to report that this represents the highest full year revenue delivered from the Distribution Product segment in the company's history.

Gross profit for the year ended December 31, 2019 was $49.7 million, an increase from the $41.5 million recorded in the year ended December 31, 2018. Gross margin for the year ended December 31, 2019 increased to 39% from 36% in the same 12-month period of 2018. For the year-ended December 31, 2019 research and development expenses increased to $13.1 million dollars from $9.7 million recorded in the year ended December 31, 2018. This increase is primarily driven by increased R&D expenses specifically related to the initiation of the company's Phase 3 InnovAATe clinical trial.

Net income was $22.2 million or a profit of $0.55 per diluted share for the year ended December 31, 2019, compared to net income of $22.3 million or $0.55 per diluted share during the same 12-month period of 2018. During the year ended December 31, 2019, we generated cash from operations of $27.6 million, which contributed to our strong financial position. As of December 31, 2019, the company had cash, cash equivalents and short-term investments totaling $73.9 million, a $23.3 million increase compared to the December 31, 2018. As indicated by Amir, this does not include the $25 million private placement closed with FIMI Opportunity Fund in February 2020.

Looking ahead to 2020, as previously communicated, we expect a change in product sales mix with increased sales of the company's Proprietary IgG product portfolio in the international market, expected growth of the Distribution segment's GLASSIA and increased sales of KEDRAB. As mentioned, GLASSIA sales to Takeda in 2020 are expected to be consistent with the level in 2019. The change in product sales mix as well as the reduced plant utilization are anticipated to result in an overall decrease in the Proprietary Product segment, full year gross margin of approximately three to five percentage points as compared to 2019.

Lastly, as previously communicated, due to the planned acceleration in 2020 of the Phase 3 InnovAATe clinical trial, Kamada expects approximately 20% to 25% increase in R&D expenses in 2020 as compared to 2019. Such increase is higher than previously reported due to the delay of certain activities originally planned for 2019, which are currently expected to take place in early 2020. That concludes our prepared remarks. We will now open the call for questions. Operator?

Questions and Answers:

Operator

Thank you.[Operator Instructions] Our first question is from Raj Denhoy with Jefferies. Please proceed.

Raj Denhoy -- Jefferies -- Analyst

Hi, good morning. I want to ask a couple of questions, but the audio on the call was a little bit -- a little bit difficult. So we didn't really catch a lot of the prepared remarks, but one of the things I wanted to clarify that you mentioned was the -- the revenue from KEDRAB. I think you noted that in 2018 when you first launched you were at 10% market share. I don't think you gave an update in terms of where you were in 2019. But perhaps you could kind of ground this and how that product has been doing in the U.S. market thus far.

Amir London -- Chief Executive Officer

Thank you, Raj. We had significant growth with KEDRAB in the U.S. market in 2019. We will report the full data set in our annual report on the 28th by end of this month. So collecting all the data and everything will be shared with the public by end of the month.

Raj Denhoy -- Jefferies -- Analyst

But I think -- but your -- I guess, your comment there was that it grew significantly here in 2019. But you will have to wait till we get the final numbers to quantify exactly how much?

Amir London -- Chief Executive Officer

Correct. Significant increase, final numbers you will have at the end of the month and we expect another significant growth for 2020.

Raj Denhoy -- Jefferies -- Analyst

Okay. And maybe just for a second question, I can kind of ask a bit of a broader one. So you -- I think you're starting to put a finer detail around the kind of complexion of the revenue over the next couple of years with the Takeda hand off, but then also some of your initiatives to kind of backfill the revenue, but I guess what we're still struggling a little bit is how well this ultimately plays out. As you've given guidance next year of kind of in that $135 million range, it will fall significantly in 2021, as you've mentioned, but then with all the tech kicking in and then this undisclosed agreement -- the supply agreement behind that. How should we think about what revenue does? So if next year is $135 million with the fall off indicated, but in the offset from these other things, was 2021 something in the $100 million range and then it starts to build from there. Is there anything you can just sort of offer in terms of how we should be modeling this going forward?

Amir London -- Chief Executive Officer

We will not -- I will not give now specific numbers for 2021 and 2022 but then we'll definitely talk about the trend and the business activity which we're doing. For 2020, we are going to keep growing the business. 2021 will be impacted by the transition of GLASSIA to Takeda. In 2022, we are seeing and based on all the activity, which we are doing and starting from '23, we expect that the trend will change, we'll start growing in revenue and in profitability and the different elements, the different components of that growth has to be KEDRAB continue to grow in the U.S. and our Proprietary product, the IgG and GLASSIA, growing in the international market. It's already happening and it is part of our growth forecast for 2020. The Distribution business is growing during 2019. We expect it to continue growing in 2020 and moving forward.

The deal with Alvotech is definitely an important component to the growth, but not just by itself as a product that in other [Indecipherable] in terms of top-line and profitability and the Distribution business is improving, the cost of manufacturing is already signed and will commercially kick in, in 2023. This will have its contribution and of course the royalties from Takeda that will start in the second part of 2021 and we will grow 2022 moving forward. So we're looking at all these components, KEDRAB, Proprietary product in international market, Distribution business, contract manufacturing, royalties and this is before any additional business development initiatives. We are definitely very encouraged by this solid business that we're building, and by the multiple channels and revenue stream for the company which will make it very stable, solid and successful company moving forward.

Raj Denhoy -- Jefferies -- Analyst

No, it's very helpful. Thank you. And maybe just -- sorry, just one last one I'll ask on inhaled trial in Europe. Encouraging to see the first patient enrolled in the study. Have you had any kind of updated thoughts now that you've started this trial in terms of how long it will take to complete? Our understanding is, given the necessity to have AAT native patients, that enrollment could take some time but are -- is that true? Are you more encouraged perhaps or maybe less so given what you've seen early on in the study?

Amir London -- Chief Executive Officer

The current focus hasn't changed. We anticipate that recruitment will take up to two years. And then you have two years of treatment. So the program is around four years and then we need to add of course submission and review by the regulator. So the target of 2025 still remains our focus for the launch if the trial is successful, of course.

Raj Denhoy -- Jefferies -- Analyst

Okay, perfect. Thank you.

Operator

Our next question is from Keay Nakae with Chardan Capital Markets. Please proceed.

Keay Nakae -- Chardan Capital Markets -- Analyst

Yes, thank you. First with GLASSIA with the transfer, what now do you view the prospects for selling at OUS and also does Takeda, if they're good, going to control the manufacturing for the product in the U.S., have they expressed interest in obtaining rights to sell it in OUS?

Amir London -- Chief Executive Officer

I'm not sure I fully understood the question, but did you ask about outside of the U.S.?

Keay Nakae -- Chardan Capital Markets -- Analyst

Yeah, you saw a little bit of product currently outside the U.S., what are the prospects for expanding sales there?

Amir London -- Chief Executive Officer

Oh.Thank you. So yes, as we discussed in the past and we are selling GLASSIA outside of the US in different countries where our conversation is prevalent, primarily, Latin America, Russia, Israel and few additional countries. We work through local distributors. We are very happy with the performance of those distributors who are specialized in this type of product, also in preliminary stage. Growing the potential is significant, not as much, of course, as you are familiar. But there is potential and we believe that we are making good progress in identifying these locations, getting the reimbursement with treatment and growing that both [Indecipherable] in terms of new registrations. So currently it's in good hands of our network of distributors.

Keay Nakae -- Chardan Capital Markets -- Analyst

Now that Takeda is going to be making the product for the U.S. sales and have the ability to gain an advantage in scale of increased revenue, have they expressed an interest in licensing OUS sales?

Amir London -- Chief Executive Officer

Canada [Indecipherable] to make GLASSIA for ex-US territory. The agreement with Takeda is the U.S., Canada, Australia and New Zealand. If there's any problems with Takeda in result to other territories, we will of course announce this publicly.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. And with respect to the inhaled study, can you tell us -- is there a target for percent of patients you're going to enroll in the U.S. versus in Europe? And when do you expect to enroll the first patients from the U.S.?

Amir London -- Chief Executive Officer

Thank you. So we are in the process of initiating the U.S. portion of the study. Once we have first patient being enrolled, we will announce it. We don't have specific target in U.S. versus Europe in terms of recruitment. The total recruitment target is around 250 patients. We will open sites at few outlets in the U.S. as needed and based on the progress we will decide if we need to add more sites in either one of the territory. So we have no specific target patients to be recruited in both territories, but no specific target for how much will be recruited in the U.S.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. And just a final question. You have announced some business development activities to utilize your manufacturing capabilities. Is there -- beyond what you've already announced, is there additional products that you're targeting that you could make to your facility?

Amir London -- Chief Executive Officer

We have ongoing proactive development activities, we are talking to different potential partners in our facilities that's been approved. We have a technology to make a range of plasma-derived products. Once we have any news and results in additional transaction, of course, we'll report it. There's ongoing proactive business development activity and initiatives which are being assessed by us and our partners.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay, that's all I had. Thanks.

Operator

We have reached the end of the question and answer session. I would like to turn the conference back over to Amir for closing remarks.

Amir London -- Chief Executive Officer

Thank you. In summary, we are pleased with how our business performed across all facade in 2019. We are focused on driving superior growth as evidenced by the recent equity raised and specialty developments in drugs as we entered in the fourth quarter. We will continue to pursue this business development initiatives and prioritize business product licenses and acquisitions. We are also very excited with the initiatives to innovative pivotal Phase 3 trial for our unique inhaled AAT program, which has a potential to be another important source of long term value creation for our shareholders. We remain highly confident in some other long term prospects for success. Thank you for joining us today. And I look forward to providing you with final updates on our progress in the coming months. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 33 minutes

Call participants:

Bob Yedid -- Investor Relations, LifeSci Advisors, LLC

Amir London -- Chief Executive Officer

Chaime Orlev -- Chief Financial Officer

Raj Denhoy -- Jefferies -- Analyst

Keay Nakae -- Chardan Capital Markets -- Analyst

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